Chapter 7 Means Test Explanation
The means test is a standardized form from the United States Trustees office that calculates your average monthly income and turns it into an annual figure.
The means test applies to your whole household income in Texas, even if your spouse isn't filing with you. However, if you're legally separated, things might be different so you would want to speak to an attorney.
The means test in Texas compares your household income with other households in the state. They get those figures from the Census Bureau. If your income fluctuates, that could help you qualify for a Chapter 7 because the attorney may take the average of the past 6 months of your income to determine if you are below the income threshold. There's this average income calculator that can help you determine if you qualify! It's designed specifically for the Texas means test so that you can get an estimate of your average monthly income.
Now, let's break down the bankruptcy means test calculation for cases filed in Texas in 2023.
Texas Chapter 7 Bankruptcy Income Limit
If you're living in Texas and considering filing for bankruptcy, it may make sense to consider the Chapter 7 Bankruptcy Texas Income Limits. These figures are for bankruptcy cases filed on or after April 1, 2024, which tend to change every six months. Make sure you check the most up-to-date information.
| # of People | Annual Income |
|---|
| 1 | $61,460 |
| 2 | $79,870 |
| 3 | $89,842 |
| 4 | $108,866 |
| 5 | $118,766 |
| 6 | $128,666 |
| 7 | $138,566 |
| 8 | $148,466 |
| 9 | $158,366 |
Remember that these income levels determine if you may be eligible for bankruptcy and which type you're suitable for. Consult a bankruptcy attorney or a legal professional to understand how these numbers apply to your situation.
What Is Considered Income?
Not all income is considered when calculating your eligibility for bankruptcy. There are a few exceptions, like disability and social security income. More details about what's excluded in the bankruptcy means test can be found here.
Let's talk about the types of income that are included in the Texas bankruptcy means test:
- Salaried income
- Spousal income (in joint cases or if you're not legally separated)
- Hourly and overtime income
- 1099 income (think Uber or Lyft)
- Net rental income
- Texas government income
- Child support, alimony
- Dividend, interest, and royalties
- Pension and retirement income
- Net business income
- Annuity payments
- Unemployment compensation
- Worker's compensation benefits
Now, let's take a moment to look at how household size comes into play when crunching those numbers.
What Is Considered In Household Size?
Another question that often comes up is how household size is determined. Now, when it comes to your roommate, they may not be included in your household size. However, your children, those you report as dependents on your taxes, would typically be included.
However, if you have children who are away at college or are engaged but not yet married, it can depend if they are counted or not. Different Texas bankruptcy jurisdictions may have different rules on who can be counted as part of your household, but generally, it usually goes by the saying “heads on beds” and sometimes the attorney may look at who is filed within your taxes.
Timeframe of Filing Another Bankruptcy
If you filed for bankruptcy in the past and are looking to file again, be sure that the appropriate amount of time has passed. Before you file another chapter of bankruptcy, you may have to wait a few years. Check out the timeframe below:
Chapter Filed Earlier, Chapter to be Filed, Time Restriction
- Chapter 13, Chapter 13, 2 years between filing
- Chapter 7, Chapter 13, 4 years between filing
- Chapter 13, Chapter 7, 6 years between filing
- Chapter 7, Chapter 7, 8 years between filing
Texas Above Median Bankruptcy Means Test
You might wonder if you have any options if you do not qualify due to income limits. There are still two means test forms that you can use to determine your eligibility. First, we have the Statement of Exemption from Presumption of Abuse Under §707(b)(2). And then, we have the Chapter 7 Means Test Calculation. These forms allow you to deduct your allowable monthly expenses from your current monthly income (CMI) to determine your disposable income.
Disposable income is the money you have left after paying all your expenses. If your disposable income falls below a certain amount, you might still be eligible for Chapter 7 bankruptcy.
But how do you figure out if you meet the requirements? Sometimes the means test may factor in some expenses when determining if you qualify for Chapter 7. You can estimate Chapter 7 qualification in Texas below:
Allowable deductible expenses
If you're going through the bankruptcy means test, you might wonder what expenses you can deduct.
First off, there are certain expenses that you can deduct as actual expenses on the second part of the test. These include mandatory employment deductions like union dues, retirement plans, and uniforms. You can also deduct health and disability insurance premiums, income taxes, child care expenses, term life insurance premiums, secured debt payments for your car and home, alimony and child support payments, and charitable contributions (but there's a limit based on a percentage of your income).
You can also deduct other expenses for exceptional circumstances. However, these expenses have limits based on the number of individuals in your household. You can check out the current national standards to find out the maximum amounts allowed for these expenses. These expenses include housekeeping supplies, clothing, food, personal care services and products, housing and utility expenses, transportation expenses, and out-of-pocket healthcare expenses.
If you still have questions or need further guidance, contacting a local bankruptcy attorney in Texas is always a good idea. They can give you a free evaluation and help you navigate the process. Don't hesitate to get the support you need!
What Happens If You Fail the Bankruptcy Means Test?
If you don't pass the bankruptcy means test, don't worry! There are still options for you. One option to explore is filing for Chapter 13 bankruptcy or you can also look into bankruptcy alternatives like debt settlement, management, or payoff planning.
Chapter 13 Bankruptcy
A Chapter 13 bankruptcy in Texas is like a restructuring payment plan. It's a way for you to pay back some of your unsecured debts through a payment plan. The good news is that you can usually keep your assets, and there's no need to qualify as long as you stay within the debt limits. Plus, it stays on your credit report for seven years instead of 10. It can take either 36 or 60 months to complete. But, if you're in 100% Chapter 13, your payment plan might be shorter.
However, with Chapter 13, failing the means test means you do not have enough disposable income to make a payment at the end of each month to the bankruptcy trustee. Because of this, the court cannot grant you a Chapter 13 bankruptcy, which may require sizable monthly payments.
Some people prefer a Chapter 13 bankruptcy over a Chapter 7 bankruptcy when they have more equity than what's allowed under the Texas bankruptcy exemption. It's all about making the best choice for your situation.
Debt Settlement
Debt settlement is when you or a company negotiate with your creditors to reduce the amount of money you owe and they forgive a portion of your debt. For instance, if you started with $50,000 in debt, debt settlement can bring it down to a more manageable $25,000.
Debt settlement usually comes with a payment plan that spans anywhere from 12 to 60 months. Sometimes, it can be cheaper than filing for Chapter 13 bankruptcy.
When choosing a debt settlement company, you have to be careful. Some companies charge around 25% or more of your enrolled debt. So, make sure you do your research before diving in. You can check out the Consumer Finance Protection Bureau for the latest debt settlement program information.
Many debt settlement firms operate nationwide, so you don't necessarily have to find one right in Texas. They've got you covered, no matter where you are.
Cons of Debt Settlement
There are some potential negatives of this option, namely that you tend to have to miss a few payments for your creditors to be willing to negotiate. Not only does this put you at risk of being sued by the creditor, but it also impacts your credit score for up to seven years.
Additionally, there is no legal protection so if a creditor does not agree to a negotiated payment plan, they may sue you. If a creditor sues you then that may go on your credit report.
There are also potential taxes on the forgiven debt. Whatever debt was forgiven in the settlement may be taxable and you have to report the canceled debt on your tax return for the year it was canceled. Generally, you may have to report any taxable amount of canceled debt as income. The creditor may send you a 1099-C form you would have to fill out.
Debt Management
Debt management, or credit counseling, is when a company steps in to help you with your debt by negotiating a lower interest rate. Let's say you're stuck with a 22% interest rate on your debt. A debt management company can work to bring that rate down to a more manageable 9%. Most debt management companies are non-profits and are usually excellent at working on credit card debt, but when it comes to unsecured personal loans, they might be unable to help. You'll typically be put on a payment plan when you sign up for a debt management program. This plan can last anywhere from 36 to 60 months.
The pro of this program is that it may allow you to pay into the principal rather than the increasing interest. So, if you have credit cards with high interest rates and want a less aggressive option, this may be something to look into.
The downside to this option is that you still have to pay off everything you owe, so it may be a more expensive option. The good news is that it won’t hurt your credit as much as some of the other options may. However, the accounts included in the program will close which may take a small hit to your credit.
Many debt management firms are national, so you don't have to stress about finding a local one if you live in Texas.
Summary
Understanding the bankruptcy means testing and income limit in Texas for Chapter 7 bankruptcy qualification can be complex. Many prefer Chapter 7 bankruptcy because it's often cheaper than other debt-relief options. When looking into filing Chapter 7:
1. Compare your household income to the Texas income limit. Remember, certain incomes count, and others don't.
2. Even if your household brings in more money than the income limit, don't lose hope. You may still qualify for Chapter 7 bankruptcy in Texas based on your expenses and deductions.
3. Don't give up if you do not pass the bankruptcy means test. You still have options like Chapter 13 bankruptcy, debt settlement, or debt management.
Hopefully, this article has shed some light on the subject. And if you want to estimate your Chapter 7 qualification, use the bankruptcy test below:
If you need help or would like to speak with someone, you can always call us at (310) 307-5134 for a free consultation.
